8 Oct 2012, 4:42pm
economy:
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  • Osborne – workers of the world unite – and take the shaft?

    Wow, ain’t he generous? When I was a young Ermine, one of the principles I was taught was that the whole point of the rule of law meant there was one law applying across the land. Okay, as I got older I realised that often money and influence could tarnish the ideal, but here’s George on the TV offering people nothing for something:

    George, me old mucker, there was a story on some old book years ago about some fellow selling his birthright for a mess of pottage. You read that and figured it sounded great. Let’s take a butcher’s hook at this deal for new workers:

    Here you are, £2000 to £50,000 worth of shares in your future employer, in return for losing most of the the expectation you used to have of remaining an employee or at least there being some warning of getting the hoof, and your overall employment security. There is already a well-established and equitable way of companies getting a flexible workforce.

    Contractors sell security of employment – for extra pay, not a one-off bung!

    Hang on, didn’t that used to be called contracting? I once saw a spreadsheet of departmental salaries where they had us permies and the salaries of the contractors. The contractors were typically on three times the gross salary of permies.  They have no employment rights, no pension, no statutory sick pay, they get to pay their own employer NI. That’s why they earned so much more! If they had any brains they’s use some of that excess to stick into a pension,  insure against sickness, and build up an emergency fund. Oh and pay NI to HMRC under IR35. All that probably took up half the excess, and the rest was compensation for being more entrepreneurial and the fact that the company could hire and fire at short term notice.

    Not a bad deal at all. Boy George wants firms to get that on the cheap. Here’s an Ermine’s word in the shell-like of putative employees that are tempted. Just Say No. Want £2000 worth of shares in the company you are about to join absolutely tax free? Here’s how to get the gain without the pain.

    Save up £2000, open up a stocks and shares ISA, instruct broker to purchase £2000 worth of Company of your choice, sit back, job done. No CGT to pay in future either! No need to sell your employment rights for that.

    There are other ways to build up a stake like that, for instance join Sharesave, on maturity you can transfer up to £10k worth of shares to a S&S ISA, job also done but you are also protected against share price movement downside!

    Boy George’s offer is a bum deal. Do yourselves a favour. Just Say No to the Osborne pottage. If you like the firm’s prospects that much, contract for them, and use an ISA to save some of your contractor’s premium, in shares of the firm. Each and every year you work for them!

    As of the end of this year, I will own about an equivalent value of shares in my former employer as my take-home pay would have been, purchased in employee shares and Sharesave. That’s a damn sight more that the one-off £2000 Osborne’s offering for your surrender of your employment rights, and that is about half the extra amount firms have to pay contractors to accept for not having any – each and every year. I don’t particularly consider myself an ‘owner’ of The Firm. I get some satisfaction from the fact my ex-employer has to pay me about a month’s take home every year in dividends, but it’s a bigger stake than Osborne’s offering people to sell their legal rights for. Your pissant stake in the company is going to do diddly-squat to influence the direction of the firm. The interests of shareholders are to some extent diametrically opposed to the interests of the employees. I don’t hold this stake in my ex-employer just because Neil Woodford owns a big slug of it in Invesco Perpetual’s high income fund; some of the reason for holding the shares in The Firm were some of the reasons that made it a worse place to work in the end.

    Free shares for your employment rights –  Snog, Marry, Avoid?

    She’d say Avoid to Osborne’s deal 🙂

    Know a bad deal when you see it. This one’s definitely Avoid. Unfortunately, it looks like employment law is going to be rewritten to allow for new hires to be only offered second-rate employment rights, rather than having a genuine choice. You may not have the option to avoid, and contractors may also get the shaft, as the flexibility they offered at a price is going to be undercut somewhat. Heck, as an employer I’d rather offer an Osborne hire and fire ’em contract at permie salary with a bung at the beginning for any role where the extra cost of NI, NIST pension + £2000 share bung is less than the contractor premium over the expected life of the job. Yes, the range is £2000 to £50,000 worth of shares, but somehow I get the feeling £2000 is going to be the thick end of the distribution 😉 The £50k will be at the board level end, and these don’t usually have to worry about getting the push unexpectedly…

    Osborne’s not offering you anything of significant value compared to what you have to surrender, and what he is offering is pretty cheap to buy on the open market along with the much vaunted CGT tax advantage carrot he’s dangling. He could have done so much better – how about vesting a six months to a year’s salary worth of share options at the start, to mature after five years or when you are terminated, if the latter is earlier? He could sweeten the deal for companies by foregoing NI until the vesting period ends, the saving in unemployment benefit would probably make this revenue neutral.

    Try harder next time, George.

    Strictly for internal (Conservative Party) consumption methinks.

    I got a feeling that it will be mostly in use for private firms since as you pointed out, the public-listed companies’ shares can be bought though other means.

    Either way, it really does depend on how confident you are in the firms’ future. While I would not mind having a holding in my employer’s company but not at the price of loss of the rights.

    I think its a grand idea… we could pay MPs in government bonds redeemable only after 5 years. Would have been good for Greece so it might be good for us.

    Not really sure about this investing in a big company you work for. If it is small I see the logic, but otherwise is it not a case of putting eggs in one basket? Why not just pay in that old fashioned commodity… what was it called?… Oh yes, money.

    @SG well, yeah, but I got to cite a photo of Jenny 🙂 A damn sight more comely that old George, IMO…

    @JoeSP – and therein lies the rub, is 50k enough to incentivise peop;e? Seriously, if you have the smarts to go for it, in some ways the 50k top end isn’t enough. If you’re going to take serious capital risk, 200k is a reasonable CGT exception 🙂 But then as an investor/original stakeholder you’re probably easy with the risk profile…

    @TheRob I worked for. The tense is important 🙂 Remember I’m an old git, so I don’t have your 10% ambition. Not because I wouldn’t like to have it, but I don’t have your energy, or your risk tolerance, or indeed ,sadly, historically, your performance. I have fewer years on earth to amortise losses, though still half my adult life ahead of me, D.V.

    5% (real) is good enough for me. And there’s some irrational buzz in socking it to the buggers that took me down. But I will diverisfy that holding over the next year, becaues I need to for CGT reasons, and I need to for asset allocation reasons. But I will savour socking it to The Man for a year, because I need to do it to vest my options to the max. I am still paying into sharesave even while I’m not employed by The Firm, because I can. And it would be rude not to 🙂

     

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